VALUE INVESTING
Pifco

By Stephen Bland (TMFPyad)
March 30, 2001

A manufacturer of small household electrical appliances and cookware, Pifco (LSE: PFCO) is definitely a tinpot (a word used on the value board to mean a small cap under £100m). As such, include me out from any desire to invest in it. Its products are quite well known, trading under the name Pifco itself as well as Russell Hobbs, Carmen and Tower to name a few.

Here are the fundamentals:

• Share price 154p
• 52w high/low 174/150
• 5 year high/low 247/133
• Market cap £28m
• Earnings per share year ending 30/04/00 (normalised) 21.6p
• Price/Earnings 7.1
• Yield on historical dividend of 7.26p, 4.7%
• Price/Tangible Book Value 1.0
• Gearing –45%, i.e. net cash
• One year relative strength +16.8%
• Directors own 21%
• Other majors own 46%

There are no recent forecasts. Only one broker covers the share anyway and their forecast for the year to 30/04/01 was made back in August 2000. For what it is worth they forecast earnings per share of 22.1p and a small rise in the dividend with a further small rise to 23.8p for 30/04/02. They are also the house brokers. Such is the way with tinpots. If the 2002 forecast turns out to be accurate, then the P/E on that EPS drops to only 6.5.

Reading news from the company, I find that in May 2000 it bought another small appliance company, D H Haden, for £3.2m cash, which clearly would have made a hole in their cash pile of about £13m at the last balance sheet date on 30/04/00 to which my figures in the above table refer. Still leaves them with the odd £10m or so, other things being more or less equal, against a cap of £28m.

One interesting point, which does not concern the company directly, was that a competitor whose name escapes me was recently the target of a bid from the Italian electrical appliance manufacturer De Longhi. Well, it shows that someone might be interested in this kind of thing.

What's the record? Not bad. Normalised EPS has risen gently from 16.2p in 1996 up to 21.6p in 2000, with a very minor setback in 1999. Dividends have increased unbroken over the same period.

Recent directorspeak is encouraging as the chairman said this in January 2001 with the interims:

"Second half sales have continued to show growth and we expect a satisfactory result for the year."

Also, for what it is worth, I notice that some investment holding company based in a tax haven has upped its stake recently, giving it over 4%. I have no idea who is behind this.

Generally I don't like tinpots for all the reasons of extra risk they carry compared with my real love of big cap value plays. These reasons have been spelt out many times so I won't repeat them here. But for anybody interested I advise that these are considered carefully before looking at Pifco, or any very small company.

And that's it.

The author does not hold Pifco shares nor does he intend to. He does however recommend the film "Traffic" with Michael Douglas and Catherine Zeta Jones.

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